After the Sensex and Nifty registered their biggest fall in over 4 years just a session after the presentation of Union Budget 2019, experts say that increased taxes for HNIs, FPIs and FIIs spooked investors, even as valuations remained high.
After the Sensex and Nifty registered their biggest fall in over 4 years just a session after the presentation of Union Budget 2019, experts say that increased taxes for HNIs, FPIs and FIIs spooked investors, even as valuations remained high. Notably, the 30-share Sensex plunged by more than 900 points to hit the day’s low at 38,605.48, but recovered mildly to settle 793 points down to 38,720.57. The broader Nifty plunged more than 2.14% to end at 11,558.60. “The market fall today is largely due to the significant increases in Surcharges on taxes and also lack of clarity on their applicability on capital gains. If imposed on Capital Gains the overall taxation becomes huge and reduces post tax equity returns,” investment advisor Sandip Sabharwal told Financial Express Online. According to the expert the dampened sentiments could impact impact FPI flows as well as disinvestment targets.
According to Ajit Mishra Vice President, Research, Religare Broking, the market had built in huge expectations of big bang measures from the first budget of Modi 2.0. However, the budget announcements were focused on laying the road map for the government over the next five years and preferred to stick to fiscal prudence. “Additionally, proposal to increase the public holding limit to 35% also impacted the sentiments. Further, the monsoon has seen marked improvement in the past 1-2 weeks but still remains below normal. These factors along with existing premium valuations of Indian markets with no meaningful revival expected in Q1FY20 dragged the markets lower,” he said, adding that earnings revival would be crucial for the market to sustain its current valuations. Notably, the earnings season for India Inc willl kick off tomorrow, with IT giant TCS scheduled to report Q1 results.
Given the increase in tax incidence for foreign investors, FIIs were reluctant since last two weeks to commit to Indian markets. “This was a flashing signal that markets will correct,” Umesh Mehta, Head of Research, SAMCO Securities told Financial Express Online adding that the weight of valuation itself of large caps – the fractured nature of current market setup and lack of any positive triggers was one other factor which led to the fall. “No direct fiscal or monetary incentive to jumpstart the slowing economic engine which added to the growing disappointment on the Street,” he noted further.
Technical analyst Milan Vaishnav noted that the markets, that were anyway grappling with weaker technical setup and fractured market breadth were further spooked today when further details with regard to higher taxation were clarified. “As per the finance bill, the FPIs, FIIs are also subject to higher taxes. This will result in both Long and Short Term capital gains tax incidence getting higher. This is the major factor to which the markets reacted in such a fierce and negative way,” Milan Vaishnav, Consulting Technical Analyst, Gemstone Equity Research & Advisory Services told Financial Express Online.